Undue influence
In cases of coerced debt, most challenges will be made on the basis of ‘undue influence’ – ie, if a person has taken unfair advantage of their influence over another person. Unfortunately, this can be difficult to prove.
Undue influence does not apply if the lender has:
•advised a customer to take independent legal advice regarding credit agreements in their name; or
•explained to them in private what their responsibilities are and the consequences of not meeting them.
However, a credit agreement with a lender could be voided if there are obvious signs of economic duress or undue influence from a third party, such as a partner, and the lender ignores these signs. For example, there may be a telephone recording of the application, in which the borrower is being coached through the process.
There are also certain situations when the lender is expected to know there is a risk of undue influence. This is called ‘constructive knowledge’ and applies, for example, if a customer has agreed to act as a guarantor to someone else’s borrowing. In these situations, the lender is put ‘under notice’ of undue influence. This means that the lender must takes steps to ensure that the client is acting of their own free will. In practice, this usually means that the lender must tell the customer to seek independent legal advice.
Challenging the liability of a credit agreement that is in a customer’s name is difficult and it will only be possible in a small number of cases. It is not the right course for every debt client. Other debt solutions may be possible, including asking the lender to write off the debt, asking for a repayment plan or one of the statutory debt options available in Scotland, including the Debt Arrangement Scheme and bankruptcy.
When negotiations do not go your way and your client wants to challenge the decision not to write off the debt, you can complain to the FOS. For more information and case studies, see .